THE COMMISSIONER OF INCOME TAX vs. THE PUNJAB STATE ELECT. BOARD,THE MALL

ITA/31/2003HC Punjab & HaryanaPHHC01003441200330 March 2016Author: MR. JUSTICE S.S. SARON,MR. JUSTICE ARVIND KUMAR9 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s Punjab State Electricity Board, issued interest-bearing bonds and was liable to deduct tax at source under Section 193 of the Income Tax Act, 1961. While the assessee deducted tax on interest paid, it failed to deduct surcharge. The Assessing Officer (AO) created a demand for surcharge and charged interest under Section 201(1A) for assessment years 1988-89, 1989-90, and 1990-91. The Commissioner of Income Tax (Appeals) directed recalculation of interest up to the end of the financial years after verification of tax payment by payees. The Income Tax Appellate Tribunal (ITAT) modified this, holding that the AO should allow the benefit of payment on a proportionate/rational basis, considering the entire liability was cleared within the financial year. The revenue has appealed this ITAT order.

What did the High Court hold?

The High Court held that there was no error in the approach of the Tribunal. The Tribunal's direction to allow the benefit of payment on a proportionate/rational basis, considering that the entire liability was cleared in the financial year, was upheld. The reasoning was that interest under Section 201(1A) is compensatory and should be recovered only for the period the State was deprived of the amount due. When recipients paid tax and surcharge on interest income along with other income, and bifurcated figures were not available, the AO should allow the benefit of payment on a proportionate/rational basis. The Court referred to various High Court and Supreme Court judgments, including Hindustan Coca-Cola Beverages (P) Ltd. v. Commissioner of Income Tax (2007) 293 ITR 226 (SC), which stated that no demand under Section 201(1) should be enforced after the tax deductor has satisfied the officer that taxes due have been paid by the deductee-assessee, though this does not alter the liability to charge interest under Section 201(1A) till the date of payment by the deductee. The questions of law were answered accordingly. The operative direction was that the AO should allow the benefit of payment on a proportionate/rational basis.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the ITAT was right in law in directing the AO to charge interest under Section 201(1A) of the Income Tax Act, 1961 from the due date to the date of actual payment of tax/surcharge, whichever is earlier? 2. Whether on the facts and in the circumstances of the case, the ITAT is right in law in directing the AO that the tax paid by the recipient during the previous year, if any, on such income be treated as payment of tax/surcharge under Section 193 of the Income Tax Act, 1961 for calculating interest under Section 201(1A) of the Act? 3. Whether on the facts and in the circumstances of the case, the ITAT is right in law in issuing directions as per question No.2 which are contrary to the provisions of Section 209(1)(d) of the Income Tax Act, 1961, as the amount of tax/surcharge deductible u/s 193 is required to be excluded from the amount of advance tax calculated under Section 209 and is not payable as Advance Tax? Assessee's Contentions (implied from Tribunal's reasoning and High Court's acceptance): The tax/surcharge paid by the recipient directly should be considered for calculating interest under Section 201(1A) up to the date of actual payment, even if it's after the due date of deduction by the assessee. The interest should be calculated on a proportionate/rational basis if the entire liability was cleared within the financial year, especially when bifurcated figures are not available. Revenue's Contentions: The revenue argued that interest under Section 201(1A) should be charged from the due date to the date of actual payment by the person responsible for deducting tax. They relied on CIT Vs. Rathi Gum Inds. (231 ITR 98) to argue that "such tax is actually paid" means paid by the deductor. They also contended that directions in question 2 are contrary to Section 209(1)(d) as tax deductible under Section 193 should be excluded from advance tax calculation.

Which sections of the Income-tax Act were involved?

Section 260A,Section 201(1A),Section 193,Section 209(1)(d),Section 191,Section 271C

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 30.3.2016 The Commissioner of Income Tax, Patiala ....Appellant. Versus M/s Punjab State Electricity Board, The Mall, Patiala ...Respondent.

1.

Whether the Reporters of the local papers may be allowed to see the judgment?

2.

To be referred to the Reporters or not? YES

3.

Whether the judgment should be reported in the Digest? CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MRS. JUSTICE RAJ RAHUL GARG. PRESENT: Mr. Z.S. Klar, Advocate for the appellant. AJAY KUMAR MITTAL, J.

1.

The revenue has claimed the following substantial question of law in this appeal filed under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 28.8.2002 (Annexure A- 2) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B”, Chandigarh (hereinafter referred to as “the Tribunal”) in ITA Nos. 1276, 1277 and 1278/Chandi/1995 for the assessment years 1988-89, 1989-90 and 1990-91:- (i) Whether on the facts and in the circumstances of the case, the ITAT was right in law in directing the AO to charge interest u/s 201(1A) of the Income Tax

The order continues below.

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